Posted October 26, 2007 3:26 pm by with 10 comments

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Good news for online retailers and ecommerce – the Senate passed legislation that could ban taxes on sales for the next seven years. If passed into law would extend the moratorium on Internet taxes. Called The Internet Tax Freedom Act, it has been in effect since 1998 and has already been extended twice.

The extension was much-hoped for and looks promising. An agreement between the House and Senate must be reached and the new law signed before November 1st when the current moratorium expires.

The House has already passed a four-year moratorium on internet taxes, so the two must now reach an agreement. Then President George Bush will need to sign off, all before next Thursday.

As Roderick noted in his post on this issue, states have already passed their own laws about online taxes. Some have made a permanent moratorium while others passed laws to tax internet sales. Existing laws will be grandfathered in. Texas was grandfathered and so collects tax on Internet access if charges exceed $25.00 per month (which is essentially on all high speed internet).

Plus the law is murky and difficult to apply fairly and can actually mean customers pay more online than at a physical store. Then there are shipping charges to consider. If you care to read it, here’s the current law. The new legislation is under H.R. 743 in the House and S. 156 in the Senate.

Businesses have banded together in favor of a permanent ban and formed a group called Don’t Tax our Web (nebulous name, isn’t it?).
Those who oppose extending the law say that the money is needed for state and local governments. Companies say the ban will improve the economy overall and more people will get high speed internet and fuel even more sales online. Incidentally the growth of online sales probably depends on keeping this ban intact.

Some worried that instant messaging and email would be taxed in the future, however the Senate version has provisions to prevent it. This is banned in the current law. Also of note: the law doesn’t ban all taxes, just taxing Internet access and from imposing other taxes for online services like for email or bandwidth.

I wish I could find a concise list of online taxes by state. If you know of a guide of this sort, please comment below. Here’s a video about the issue, featuring quotes by Don’t Tax our Web.

  • Thanks for the update on this subject. I caught it briefly on the TWiT podcast and you’ve added to the conversation by providing links to helpful resources.

    As a CEO in Canada, I’m hoping the Canadians follow suit and keep our Internet-related taxes to a minimum.

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  • Internet should stay off taxes, its one of the fastest growing business, and contributes to the world. internet is also growing employment medium, these people work on the net because they are not satisfied with employment government or economy provided them. there are many reasons why net should not be taxed.

  • I also think that it would be incredibly difficult to impose taxes on internet use, since traffic and access are such uncertain things to quantify.

    But the government finds a way to extract money from all of us i guess:]

  • Online merchants didn’t need a new “Don’t Tax the WEb” group – we already have the ORA. Unfortunately, people are too lazy to even pick up the phone and call their reps to tell them to stay out of their pockets.

    The fact is, people shop the web for (1) lower price, (2) to avoid sales tax. This normally makes the delivered price much lower, especially on specialty items not found at your local WalMart.

    It isn’t the federal government, it’s the National Governors Assoc. – and large retailers, trying to push sales tax on the web. They want every online merchant to collect sales tax on every sale – and then remit that money to each state…but there are around 7,000 tax districts in the US, which is a serious problem.

    They want the merchant to collect sales tax…at the correct rate for the customer’s location….then remit (send them a check) the sales tax to the taxing authority. Most small businesses simply don’t have the capacity and would be forced to close….this is why some large retailers want it – get rid of the online competition. I suspect they are spending a fair amount of money funding the Governors…

    Does anyone honestly believe the politicians…they say “we need this revenue to help our state” – how many times have they already stolen more of your money? Think about the lottery in your state – remember the promises…something like “the revenue generated will pay for schools and roads, and reduce excise taxes for everyone in the state” or something like that…didn’t happen, did it?!

    The ONLY thing taxing the internet will do is take away the consumers right to shop online tax free – and in the process, it will kill a large number of merchants who currently offer items you won’t find locally.

    I suggest somebody start calling both their state and federal representative!

  • That was thought provoking Mike. I suppose there are a lot of vested interests out there trying to manipulate the situation to their own benefit.

  • It would be nice if some other governement would consider bringing in such a regulation, for non-porn based industries anyway. It would help stimulate the economy without doubt.

  • thanks god indian government doesn’t have any idea like this

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